Social Security earnings limit question - do stock dividends count toward my SS income restriction before FRA?
I recently inherited some stocks from my uncle's estate (he passed last year), and I'm completely new to this whole investment world. The stocks have been paying quarterly dividends for about 9 months now, which are currently sitting in my brokerage account earning a bit of interest. I haven't touched any of this money yet. I'm also receiving Social Security retirement benefits, but I'm still under my Full Retirement Age (FRA), so I'm subject to those earnings limits ($22,320 in 2025 from what I understand). My two questions: 1) How are these stock dividends taxed? Do I pay taxes when they're deposited into my account, or only when I eventually withdraw the money? 2) The bigger concern for me - do these stock dividends count as "earnings" toward my Social Security earnings limit? I really don't want to accidentally trigger benefit reductions because I didn't understand how this works. I've never dealt with stocks before and don't want to mess up my Social Security benefits. Any advice would be greatly appreciated!
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Ravi Malhotra
Great questions! I can help with this: 1) Dividends are taxable in the year you receive them, even if you don't withdraw the money from your brokerage account. You'll get a 1099-DIV form from your brokerage showing the dividend amounts, and you'll need to report that on your tax return. Depending on whether they're qualified or ordinary dividends, they'll be taxed at either capital gains rates or your ordinary income rate. 2) The GOOD NEWS: Dividends do NOT count toward the Social Security earnings test! The earnings limit only applies to wages from employment or net earnings from self-employment. Passive income like dividends, interest, pensions, annuities, capital gains, or rental income doesn't count against your earnings limit. So you can collect those dividends without worrying about your SS benefits being reduced. Just make sure you properly report the dividend income on your taxes.
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StarSurfer
•That's such a relief about the dividends not counting toward my earnings limit! One follow-up question - the brokerage automatically reinvests some of my dividends to buy more shares. Does that change anything, or is it still considered dividend income that doesn't count toward SS earnings?
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Freya Christensen
When my wife got an inheritance with stocks we just cashed everything out right away bc we didnt want the hassle of all this paperwork and tax stuff. much simpler that way imo
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Omar Hassan
•That could actually be a really bad move depending on the stocks! Some inherited stocks have been growing dividends for decades. My mom's utility stocks pay almost 8% yearly on what she originally paid. Sometimes the simple solution isn't the best financially.
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Chloe Robinson
Just adding to what others have said - you're absolutely correct to check this! But as mentioned, dividend income is considered "unearned income" by the SSA and doesn't count toward your earnings test limit before FRA. The SSA only counts "earned income" which means: - Wages from a job (W-2 income) - Net earnings from self-employment They DON'T count: - Dividends - Interest payments - Capital gains - Pension payments - Annuity income - Investment income - Lottery/gambling winnings However, remember that even though dividends don't affect your SS benefits, they still need to be reported on your tax return! And depending on your total income, your dividends might make more of your Social Security benefits taxable - that's a separate issue from the earnings test.
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StarSurfer
•Thank you for that detailed explanation! I'm trying to wrap my head around all these different rules. So if I understand correctly - dividends won't reduce my monthly SS benefit amount, but they might increase how much of my benefit gets taxed when I file my return? That's manageable, I was mainly worried about losing benefits.
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Diego Chavez
AGREE with others - dividends definately DONT count for earnings test!!! BUT be careful because IF you start actually WORKING at a company where you own stock, THEN your wages from that company DO count!!! My brother got confused about this and ended up with a HUGE overpayment notice from SSA when he took a part-time job at a company he owned stock in!!! He thought since he was a "owner" it was different but SSA said NO WAY!!!
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StarSurfer
•Wow, thanks for the warning! I don't work for any of these companies, so that shouldn't be an issue for me. Sorry your brother had to deal with that overpayment situation - that sounds stressful.
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NeonNebula
When I got stock from my parents I had SO MANY questions too. had to call SSA like 3 times and got different answers each time!! so frustrating. finally got someone who actually knew what they were talking about. the dividend stuff is confusing because it IS income on your taxes but NOT income for social security earnings test. wish they made this clearer!!
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Anastasia Kozlov
•I had the same experience trying to call SSA about my benefits calculation last month. Waited on hold for 2+ hours only to get disconnected. Finally tried using Claimyr.com to reach them - they got me connected to an agent in about 20 minutes. Saved me hours of frustration! They have a video showing how it works at https://youtu.be/Z-BRbJw3puU if you're curious. Way better than the regular hold system.
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Freya Christensen
my cousin said his financial advisor told him to just not report the dividend income but that sounds like a bad idea to me?? the irs knows about it already right??
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Ravi Malhotra
•Your cousin received TERRIBLE advice! The brokerage reports all dividend payments to the IRS on 1099 forms, so they absolutely know about this income. Not reporting it is tax evasion and could result in penalties, interest, and potentially worse consequences. Please tell your cousin to report ALL dividend income properly!
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Omar Hassan
I've been collecting SS for 3 years now (I'm 64) and have a pretty large stock portfolio. As others said, dividends definitely don't count toward the earnings limit - but just so you know, once you reach your Full Retirement Age, the earnings limit goes away completely! So in a few years, you won't have to worry about ANY type of income affecting your benefits. Also worth noting that if you're under FRA and DO exceed the earnings limit, you don't permanently lose benefits. The SSA withholds $1 in benefits for every $2 earned over the limit, but when you reach FRA, they recalculate and give you credit for those months when benefits were reduced.
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StarSurfer
•I didn't know they recalculate at FRA - that's good to hear! I'm still about 4 years away from my FRA, so I've been very careful about my earnings. This inherited stock situation had me worried I might accidentally go over without realizing dividends counted. Such a relief to know they don't!
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